Thursday was a strange day in the stock market. This could be good news

Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., June 24, 2024.

Brendan McDermid | Reuters

Wall Street saw a dramatic shift in market trends on Thursday, with winning and losing stocks trading places for a day. It could be just what the rally needs to continue.

THE Russell 2000 The small-cap index, which has struggled to find its footing all year, jumped more than 3% on Thursday. At the same time, all of the so-called “Magnificent 7” stocks fell, including a more than 5% drop for Nvidia and a decrease of 2.3% for Applewhich has dragged down both the S&P 500 And Nasdaq Composite Index.

Bespoke Investment Group shared two statistics on the social media site X to demonstrate how rare it is to have this type of division.

• Thursday was only the second day since 1979 that the Russell 2000 rose more than 3% while the S&P 500 fell.
• The Nasdaq Composite underperformed the Russell 2000 by more than 5 percentage points, which appears to be the largest daily gap on record. The only other time the gap exceeded 5 percentage points was in November 2020, just after Pfizer shared positive results from a Covid-19 vaccine trial.

And while major market averages and many individual 401k accounts may be down for the day, this odd set of results could be a positive sign for the market. Much of the recent rally has been driven by big tech companies, leading investment professionals to worry about a select group of stock market leaders.

“Today is a big day,” Ed Yardeni of Yardeni Research said on CNBC’s “Closing Bell.” “This is the day that investors start to move out of the Magnificent 7 and into the rest of the market. I don’t think it’s going to continue to drag the S&P 500 down. I think there’s going to be enough money to keep the major stocks that have done so well pretty high, but I think we’re going to see more gains in the S&P 493, as well as the small- and mid-cap stocks,” he added.

The split in trading came after the June consumer price index report was released Thursday morning, which showed headline inflation eased last month and is now up about 3% from a year ago. That has bolstered confidence that the Federal Reserve will begin cutting interest rates as early as September. Fed Chairman Jerome Powell indicated in congressional testimony this week that the central bank is aware that keeping rates high for too long could hurt the economy.

“Investors are shifting gears from large-cap tech to small-cap and mid-cap, and real estate,” Sam Stovall, chief investment strategist at CFRA Research, told CNBC. “They were looking for confirmation, perhaps not a guarantee, that the Fed is likely to start cutting interest rates, and that it’s not going to be in response to a recession.”

Bond market activity supports this idea. U.S. Treasury yields fell broadly on Thursday, meaning government bond prices rose.

“CPI is positive thanks to a slightly dovish Powell,” Ross Mayfield, an investment strategy analyst at Baird, told CNBC. “Rates have come down significantly and there’s a bit of a rotation. But the problem with the market being so focused on big tech is that rotation can look like a negative on the surface. And I think we’re seeing some of that today,” he said.

To be sure, there have also been signs of an economic slowdown in the United States in recent months. Slow growth or a recession would be tough on small-cap stocks, which tend to be more economically sensitive and domestically oriented than larger companies.

CNBC's Sarah Min and Alex Harring contributed reporting

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